The disastrous German Emperor who was a doppelganger to Donald Trump: Kaiser Wilhelm

You know the drill. It’s Sunday, so I write about whatever else is on my mind.

“Wilhelm considered himself an expert on many things and was not shy about saying so. In later years, he would personally inform the Norwegian composer Edward Grieg that he was conducting Peer Gynt all wrong; tell Richard Strauss that modern composition was “detestable” and he was “one of the worst”; and, against the wishes of its judges, withdraw the Schiller Prize from the Nobel Prize-winning German dramatist Gerhart Hauptmann, whose downbeat Ibsen-esque social realism he didn’t like.

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The Wage[s]-Lump Doctrine — still dogma after all these years

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This post “America’s allies should respond to steel tariffs with targeted sanctions on the Trump Organization” by Matthew Yglesias is brilliant (even though he is mainly agreeing with the prior brilliant article by Scott Gilmore “Trade sanctions against America won’t work. Sanctioning Trump himself might.”

The proposal is so brilliant and the case for it so clear, that, I think, each title is enough to convey the idea.

Yglesias elaborates while quoting another Canadian

In light of the unusual combination of geopolitical absurdity and delicacy that the situation poses, at a press conference last week, Canadian Prime Minister Justin Trudeau reached into the bag of rhetorical clichés we normally see American officials deploy against authoritarian regimes abroad:

I want to be clear on one point: Americans remain our partners, our allies, and our friends. The American people [are] not the target of today’s announcement. [skip]

While it’s a good speech, the reality is that Trudeau’s policy countermeasures are aimed at the American people, [skip]

A better path would be to take Trudeau’s analysis seriously — America’s allies should come together and retaliate against Trump rather than retaliating against the American people.

So why are they missing trump and hitting Harley’s and Bourbon ?

The argument of Gilmore and Yglesias is obviously correct. Not only would sanctions directed at Trump be effective, they would also be fair. Bourbon distillers and motorcycle workers bear no guilt, so it is unfair to punish them (also standard practice in trade wars but still unfair).

I’m afraid that what this really shows is that in the struggles among the powerful, the little people are pawns. Sanctions on Trump personally would cause pain to fewer people (I think a (modest) majority of US citizens woud actually be pleased). They would be vastly more effective, because Trump is totally egocentric. But they would be, and are perceived to be, a dangerous escalation.

Directing the punishment at innocent peons is a way of showing it is nothing personal (while saying it is personal). Just a normal policy debate.

Sanctions on Trump personally would be less extreme in that they would directly hurt fewer people, but they would be perceived as very extreme, because the person hurt is present at the G-7 meeting.

Sanctions on individuals are not part of normal trade conficts. There are sanctioned individuals, but they are not members of the club (many are Iranian some are Russian).

after the jump, I move on to a 2 tweet long philosophical digression (which focuses on what I imagine to be the topic of Yglesias’s senior thesis).

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Brief JOLTS update

I’m still traveling, so this will be a quick update.

In re yesterday’s JOLTS report (June 7), the main take seems to be that job openings were higher than the total number of unemployed, so presumably they could all be hired and we’d have actual full employment next month, right?

I don’t think so. Month after month, hires have totaled considerably fewer than openings for several years. If full employment were so close, why wouldn’t hires be catching up?  And every month, there are new layoffs, quits, and other separations, all of whom (except for those who retire) are available to fill those job openings.

In any event, let me focus on the simple metric of “hiring leads firing.” Here’s the long term relationship since 2000, quarterly through the end of March:

No sign yet of either turning down, although both may be plateauing.

In the 2000s business cycle, hires YoY turned down well in advance of the recession. That isn’t the case now:

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AP Exaggerates Social Security Problems

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by Dale Coberly

SOCIAL SECURITY TRUSTEES REPORT:

There is yet time, brother.

But not much.

The Social Security Trustees have issued their annual report. It is not much changed from last year. In fact it is a little better.  Last year’s Report projected that by this year Social Security would have reached “short term financial inadequacy.” This year’s projections put that off for another year or possibly two.

Short term financial inadequacy means that in ten years the Trust.  Fund reserves will fall below the level of one full year’s benefits if no action is taken.

This would not be a catastrophe, but it does mean we really ought to take action now. If we raise the payroll tax by one tenth of one percent per year until the total raise reaches about two percent of payroll, we would make Social Security solvent (financially adequate) forever: fully able to pay the benefits necessary for the people who paid the tax to live in reasonable comfort for their longer life expectancy… longer than that of their parents and grandparents. One tenth of one percent of payroll would be about a dollar per week subtracted from the paycheck of a worker earning $50,000 dollars per year. Or about fifty cents per week for a worker earning $25,000 per year. This is not money that goes into a government black hole, but money that comes back to the worker with interest when he needs it most. Enough money to pay for basic needs in retirement no matter how long he lives.  Or pay for his family’s needs if he dies with dependents or becomes disabled.

Meanwhile, the Committee For a Responsible Federal Budget does what it can to make the new Report sound like a Catastrophe in the making… as they have been doing for years. They do this by screaming about Big Numbers without reminding the reader that these big numbers are big because they are about 2% of the wages of 250 million people over a period of 75 years. If you read CRFB you have to be on the watch for this kind of misdirection. It is their stock in trade.

Worse,perhaps, is they imply that Social Security is a driver of the National Debt. Social Security has nothing to do with the National Debt.  It is paid for entirely by the people who will get the benefits.

That is essentially the case from the far Right.  Lately there has appeared a new case from the far Left. They say that the projected shortfall is not a problem because it can be solved by “making” “the rich” pay their “fair share.” The fact is that “the rich” already pay their fair share for the insurance benefit they receive. But they will not pay for your retirement, and you can’t “make” them. Nor should you. Your parents and grandparents were proud to be able to say “I paid for it myself.” And the man who invented Social Security designed it that way: designed it to be not welfare but worker paid insurance “so that no damn politician can take it away from them.”

The bottom line is this:  you need to get it fixed in your  mind first that you can save Social Security… a secure retirement… for yourself and your children and grandchildren by raising your own payroll “tax” (retirement insurance premium) ONE DOLLAR PER WEEK while your wages are going up ten dollars per week per year.   And second,  IT’S NOT GOVERNMENT MONEY. It has nothing to do with government deficits or the national debt. YOU PAY FOR IT YOURSELF and it is wisest to keep it that way.

If the one tenth of one percent payroll tax increase per year does not begin this year or next, the rate of tax increase would need to be faster.. not much faster, but if we wait until 2034 or so, the tax would need to be increased about 2% all at once. Still not a big deal when you think about it, but likely to be shocking to some, and politically dangerous.

There is a sort of middle ground. The tax could be increased about one full percent (according to the Trustees 1.42% for the worker and 1.42% for the employer) this year, and that would see us through the next seventy five years without another tax increase. After that, about another one full percent would see us through the “infinite horizon.” None of us will be alive then, and things may have changed, but the enemies of Social Security call that distant extra 1% “not solving the problem”.  They are sure we have to solve all possible problems forever before we can solve the problems we face today and for the reasonably foreseeable future. The one tenth percent per year “at need” proposed here actually does solve the problem over the infinite horizon… or at least past the 75 year actuarial,window,  but they don’t want you to even think about that.

So, think about it and see what you come up with. If you don’t think about it, and don’t DO something about it, the bad guys will win. And if you “demand” the rich pay for your retirement, the bad guys will win.

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by Joseph Joyce

The Spillover Effects of Rising U.S. Interest Rates

U.S. interest rates have been rising, and most likely will continue to do so. The target level of the Federal Funds rate, currently at 1.75%, is expected to be raised at the June meeting of the Federal Open Market Committee. The yield on 10-year U.S. Treasury bonds rose above 3%, then fell as fears of Italy breaking out the Eurozone flared. That decline is likely to be reversed while the new government enjoys a (very brief) honeymoon period. What are the effects on foreign economies of the higher rates in the U.S.?

One channel of transmission will be through higher interest rates abroad. Several papers from economists at the Bank for International Settlements have documented this phenomenon. For example, Előd Takáts and Abraham Vela of the Bank for International Settlements in a 2014 BIS Paper investigated the effect of a rise in the Federal Funds rate on foreign policy rates in 20 emerging market countries, and found evidence of a significant impact on the foreign rates. They did a similar analysis for 5-year rates and found comparable results. Boris Hofmann and Takáts also undertook an analysis of interest rate linkages with U.S. rates in 30 emerging market and small advanced economies, and again found that the U.S. rates affected the corresponding rates in the foreign economies. Finally, Peter Hördahl, Jhuvesh Sobrun and Philip Turner attribute the declines in long-term rates after the global financial crisis to the fall in the term premium in the ten-year U.S. Treasury rate.

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Wage growth: is the dam finally breaking?

[Apologies for the light posting: I’ve been traveling, and there isn’t a lot of news this week.]

A couple of months ago I wrote that raising wages may have become a “taboo,” i.e., that in some cases employers may be refusing to raising wages, even though it may be costing his money. One of the items I relied upon was from the NFIB, as small business owners presumably are not “monopsonies.” As of February, the last time I had data, small business owners were complaining of inability to fill positions, but were not raising wages.

Over the last three months, that may have changed, as revealed in the NIFB survey from May. Let’s compare hiring in small business through February:

and now through May:

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By Steve Roth  (originally published at Evonomics)

The shares of income going to “capital” and “labor” are vexed issues. How much is received for doing work, and how much is unearned “property income”— interest, dividends, etc.? For a long time, economists thought these relative shares stayed roughly unchanged over time. But since the 70s, and especially sincely the latter. And the ownership share of income goes to a small slice of households that own almost all the stuff.

The labor and capital-share measures you commonly see start by measuring total labor compensation — wages, salaries, and benefits. That’s labor’s share, in dollars. Subtract labor share from GDP, and you get the share of GDP going to owners (to “capital”). Owners’ share isn’t measured, it’s just a residual: GDP minus labor compensation.

There are some gray areas. What counts as “labor compensation”? But in the big accounting scheme of things, they’re pretty small. Little of Jeff Bezos’ and Bill Gates’s wealth, for instance, came from wages, salaries, and benefits — what the IRS classifies as “earned” income. It came from owning stock. But you can still say it’s ultimately a result of their labor — their work, smarts, and effort. Even if you grant that, though, we’re talking very small numbers: their total wealth, combined, accumulated over two to four decades, is hardly a rounding error — a bit over one percent — on one year’s total household income.

Bottom line: National accountants do impressive yeoman’s work here; “labor compensation” is a pretty solid empirical measure of what workers receive for working. And the remaining income is a good measure of what people receive for owning stuff.

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